Fancy some nice reading during these long hot summer days …….!

HMRC has issued the MTD for VAT notice alongside a communications plan for advisers to use to educate their clients about MTD. There are also now 18 approved MTD for VAT software providers.

VAT notice

This VAT notice 700/22: Making Tax Digital for VAT, expresses the law relating to MTD for VAT in a readable form and includes guidance from HMRC to fill the gaps where the law is deficient. It will be essential reading for all who have to follow the MTD rules from 1 April 2019 or a later date.

This notice gives guidance on the digital record keeping and return requirements for Making Tax Digital for VAT.

Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.

It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application. The difference under Making Tax Digital is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and communicating with HMRC digitally via our Application Programming Interface (API) platform.

If your digital records are up to date, software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.

This notice provides further details of the Making Tax Digital rules.

Not fully working

The VAT notice confirms that the full MTD service won’t be available from HMRC when MTD for VAT goes live in April 2019. Businesses won’t be able to submit voluntary updates or supplementary data to support their VAT return. HMRC says these features will be available at a later date.  Let’s certainly hope so because that would be so much simpler!!

Record keeping

Information which is required for the VAT return must be kept in a digital form within functional compatible software (see below). Only the information listed below is required; the business doesn’t have to keep a digital image of each purchase invoice.

Some permanent information about the business must also be recorded digitally such as the name, address, VAT number and any VAT accounting scheme used.

For each VATable supply made by the business it must record:

  • time of supply (tax point)
  • value of the supply (net value excluding VAT)
  • rate of VAT charged

The business doesn’t have to record the amount of VAT charged, as presumably the software will calculate this. It also doesn’t have to record transactions which don’t affect the VAT return, such as supplies within a VAT group.

For each purchase which is relevant to the VAT return the business must digitally record:

  • time of supply (tax point)
  • value of the supply
  • amount of input tax that the business will claim.

A business which is partially exempt or which uses a VAT scheme may not know how much VAT it can reclaim on each individual invoice. In that case, the business has the choice to record:

  • all the VAT paid; or
  • none of the VAT; or
  • estimated amount of the recoverable VAT.

Then once the partial exemption or other scheme calculation is done for the VAT period, an adjustment is made to the digital VAT records.

Digital links

The “functional compatible software” in which the VAT information is recorded can be a number of software programs, products, applications or spreadsheets which are digitally linked together. A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications. This definition has the force of law.

The VAT notice sternly warns that the use of “cut and paste” does not constitute a digital link. However, using digital links between software to transfer data needed for the VAT return won’t be compulsory until VAT periods starting on or after 1 April 2020. This constitutes the “soft landing”, which may be explained in greater detail in the forthcoming HMRC webinar.

There are a number of examples of digital links in section seven of the VAT notice.


The suppliers which have demonstrated a prototype of their MTD software to HMRC and who have tested their products within the HMRC test environment are listed below.

These listed software suppliers have both tested their products in HMRC’s test environment, and already demonstrated a prototype of their software to HMRC.